International Advisory and Monitoring Board on the Development Fund for Iraq

Press Release
November 4, 2005

Statement by the International Advisory and Monitoring Board on the Development Fund for Iraq

The International Advisory and Monitoring Board (IAMB) of the Development Fund for Iraq (DFI) met in Amman, Jordan on October 4-5, 2005 and issued the following statement:

"The IAMB (i) received and discussed the special audit reports of the sole sourced contracts using DFI resources; (ii) reviewed the audits of the DFI, Oil Proceeds Receipts Account, oil export sales and the disbursements to the spending ministries for the six months ended June 30, 2005; (iii) received a report from the Iraqi representative on the implementation of recommendations of earlier audits; and (iv) discussed the transition of audit oversight of the DFI and oil export sales. These reports are posted on the IAMB website (www.iamb.info).

"KPMG and staff from the Special Inspector General for Iraq Reconstruction (SIGIR) reported on the findings of the special audit of the sole sourced contracts. The purpose of this audit was to: (i) identify all non-competitively CPA-awarded contracts valued at over $5 million that used DFI funds; (ii) provide a summary of the findings of audits of such contracts that have already been conducted by various U.S. Government audit agencies; and (iii) conduct limited audit procedures on non-competitively awarded contracts that have not been the subject of audit. The SIGIR conducted the audit of the Kellogg, Brown and Root (KBR) contract after KPMG recused itself because of a conflict of interest. The IAMB regrets that KPMG recused itself from conducting part of the special audit only after that audit had been awarded and regrets that the IAMB was informed very late by the U.S. Government about the appointment of the SIGIR to replace KPMG in the conduct of the audit of the sole sourced contract awarded to KBR.

"The IAMB noted that all sole sourced contracts had been covered by audit procedures. A total of 24 sole sourced contracts above $5 million, for a total of $1,963 million, had been executed during the period starting on June 29, 2003 until the dissolution of the Coalition Provisional Authority on June 28, 2004. Of the 24 contracts one related to KBR, a contract for $1,367 million and executed with 10 task orders. The KPMG audit of the 23 sole sourced contracts revealed exceptions in a number of cases including (i) insufficient documentation to justify non-competitive contracting action, (ii) lack of support for the provision of services or receipts of goods, and (iii) discrepancies in the amount billed. The special audit by SIGIR focused on the sole sourced contract awarded to KBR for the procurement and distribution of fuel products and the restoration of the Iraqi oil infrastructure. The SIGIR reported that the process to substantiate these expenditures is still ongoing. In view of the fact that (i) the amounts questioned by the Defense Contract Audit Agency (DCAA) are significant ($208 million), (ii) the length of time that this process is taking, and (iii) $1,169 million has already been withdrawn from the DFI, the IAMB recommends that the U.S. Government seek resolution with the Iraqi Government concerning the use of resources of the DFI which might be in contradiction with the UN Security Council Resolution 1483 and recommends that amounts disbursed to contractors that cannot be supported as fair be reimbursed expeditiously.

"The IAMB noted that the regular audits of the accounting of DFI resources, oil export sales and transfers to the spending ministries continue to be critical of the overall financial control framework that is currently in place. The audit reports continue to contain numerous exceptions to administrative and accounting procedures.

"The IAMB noted that the Government of Iraq is taking measures to address a number of shortcomings identified by the IAMB and in the audit reports and to improve internal financial controls generally. In particular, the IAMB noted that the financial management law contains provisions of accountability and audit oversight, including publication of financial reports of oil revenues.
"The IAMB agreed that it is important to continue the oversight role over oil export sales, and the resources derived therefrom. The IAMB noted that, building on the provisions of the financial management law, an oversight body should be set up by the Government of Iraq that would be independent, competent and professional to ensure the continuation of external audits.

"According to UN Security Council Resolution 1546, the IAMB will cease operation no later than December 31, 2005. A concluding meeting is scheduled to take place in New York in late December, after which the IAMB will publish its final report."